What is a good customer acquisition cost for a small business?
TL;DR
Aim for CAC less than one-third of customer lifetime value (LTV:CAC ratio of 3:1 or better). For local businesses, $25-$75 per new customer is healthy. SaaS averages $150-$500. If CAC > LTV, you're losing money on every customer.
Detailed answer
- 1.Local services: $25-$75 per customer is healthy.
- 2.E-commerce: 15-25% of average order value.
- 3.SaaS: $150-$500, payback in under 12 months.
- 4.B2B services: $500-$2,000 per client.
- 5.Target ratio: LTV:CAC of 3:1 or better.
Common mistakes
- 1. Calculating CAC without including labor and software costs.
- 2. Ignoring LTV and only focusing on CAC.
- 3. Scaling channels that have CAC > LTV.
What to do instead
Calculate CAC by channel monthly. The blended number hides where you're winning and losing.
Lower CAC by leaning on referrals and customer marketing. Referred customers cost 60-80% less than paid-acquisition customers and have 25% higher LTV.
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